* Strong economy makes Germany magnet for EU job seekers
* Panel set up to tackle benefit abuse makes first report
* Concern about Romanians and Bulgarians fleeing poverty
BERLIN, March 24 (Reuters) - A government panel has recommended that Germany screen job-seekers from other European Union states for "welfare tourists" and people not qualified for employment and then expel benefit fraudsters and block their return for a fixed period.
Economic growth and low unemployment make Germany a magnet for EU citizens taking advantage of free movement in the bloc, and industry is short of workers. But there are also fears of an influx of Romanians and Bulgarians fleeing poverty since these countries gained full access to the EU jobs market this year.
With some German cities complaining their health services and welfare workers are already unable to cope with the number of unemployed east Europeans, Angela Merkel's government set up a panel in January to look into how to avoid such abuse.
Its interim findings will be presented to the media this Wednesday but a copy seen by Reuters shows Chancellor Angela Merkel's coalition of conservatives and Social Democrats (SPD) is preparing to tighten the rules.
"The government supports freedom of movement and Germany benefits from it. At the same time, we must recognise that a lot of problems can be associated with immigration," it said.
Germany's population grew for the third consecutive year in 2013 with the highest level of net migration in two decades and a sharp rise from eastern Europe. It is too early to say whether Romania and Bulgaria's full integration from Jan. 1 will produce the even more dramatic increase that has been forecast for 2014.
Guenter Krings, a deputy interior minister and lawmaker in Merkel's conservative camp, said Berlin considered free movement for workers "one of the main pillars of the European Union".
"But free movement at European level has a purpose: to find a place to work or study," he told Reuters. "If you don't have even a theoretical chance of getting employment, the necessary prerequisites for free movement are not fulfilled."
SKILLED IMMIGRANTS WELCOME
The government says most Romanians and Bulgarians come legally to work or study, but a minority pretend to be self-employed to get supplementary benefit, or claim child benefit with no real chance or intention of getting a job.
"We want to make it clear that immigrants are still welcome in Germany," Krings said in an interview. "And when it comes to immigrants we don't want to distinguish between good and bad countries of origin of immigrants but between sufficient and insufficient qualifications of the immigrants."
Late last year the mayors of 16 cities such as Cologne, Hanover and Dortmund made a public plea for help in coping with unemployed immigrants from eastern Europe, many of whom are from the Roma minority.
The public debate is less strident than elsewhere in the EU, but Germany shares the concern that an anti-immigrant backlash could boost the far-right in May's European Parliament election.
"If 80 percent of immigrants from one country are well integrated, that is not an argument for accepting the other 20 percent that are not fulfilling the criteria of the European legal regime for free movement," said Krings.
The conservative-run interior ministry and SPD-run labour ministry co-chair the panel of the top civil servants from 11 ministries, ensuring balance between the two forces in Merkel's "grand coalition", which will be 100 days old on Wednesday.
It proposes limiting job-seekers' stay to three months if they don't find work, expelling those who commit benefit fraud and blocking their return for a certain period, and imposing closer bureaucratic controls on those seeking benefits.
Police and employment offices should prosecute firms who use unregistered workers and the government should give 200 million euros to alleviate social problems in the worst-affected cities, the panel recommended. (Additional reporting by Holger Hansen and Thorsten Severin; Writing by Stephen Brown)